Key takeaways

  • Crypto exchanges implement Know Your Customer (KYC) to comply with Anti-Money Laundering (AML) and counter-terrorism financing (CTF) regulations, ensuring legal operation and user safety.
  • To sign up on a cryptocurrency exchange, you’ll need to provide personal information, verify your identity with documents and a selfie, and wait for approval to access all features.
  • KYC fosters user confidence, knowing that all members have undergone identity verification, and adds accountability in case of suspicious activity.
  • Reputable exchanges use encryption to protect personal information, addressing common concerns about privacy and data misuse.

Opening an account on a crypto exchange isn’t just about picking a strong password and a unique username. There’s an extra step involved — often legally required — called KYC, or “Know Your Customer.” It’s a part of the risk-based approach set by regulators and organizations like the Association of Certified Anti-Money Laundering Specialists (ACAMS). 

So, why is KYC so important? As crypto adoption grows, regulations are needed to prevent fraud, money laundering and illegal activities. Exchanges must follow these rules to stay trustworthy.

This guide covers what KYC is, why crypto exchanges need it, the documents you’ll need to share, the process itself, and common misconceptions about KYC.

What is KYC in crypto?

Wondering what KYC is all about? It’s a process that financial institutions, including crypto exchanges, use to verify your identity. In crypto, it ensures you’re a legitimate user and not involved in anything shady.

KYC actually started in traditional banking to confirm customer identities and block illegal transactions. As crypto gained popularity, regulators mandated KYC to onboard consumers. While crypto gives freedom and anonymity, those features can also be misused. That’s where KYC steps in to keep things secure.

Typically, during the KYC process, you’ll need to submit a government-issued ID and proof of address. Some exchanges might even ask for a selfie or biometric data for extra security.

Why do crypto exchanges need KYC?

KYC isn’t just about following the rules — it benefits exchanges and the entire crypto ecosystem:

  • Following regulations: Just like banks, crypto exchanges have to comply with AML and CTF rules. After all, who wants to use a platform linked to illegal activities?
  • Making the platform safer: Verifying every user’s identity reduces the chances of hacking or theft. KYC links each transaction to a real person, helping keep your funds safe.
  • Building trust: Knowing that everyone on the platform has been vetted through KYC makes it easier to trust the exchange and the people you’re transacting with.
  • Creating accountability: If something suspicious happens, the exchange knows exactly who to contact. Users are more accountable because they can’t hide behind anonymity.
  • Attracting big investors: Large financial institutions are more likely to trust and invest in exchanges that enforce KYC because it aligns with their own compliance standards. This helps more money flow into the crypto space, benefiting everyone.

These points make it clear why KYC has become a standard process in the crypto world.

Did you know? Between 2008 and 2018, fines totaling $26 billion were imposed in the United States, Europe, the Middle East and Asia Pacific for noncompliance with AML, KYC and sanctions regulations.

Documents to be shared in the KYC process

Crypto exchanges typically require you to share some documents to verify your ID, though the exact process might vary across exchanges, depending upon the location. The process is generally fast and straightforward. Here are the documents you may need to submit, depending on the specific regulations in the demography. To help you understand the process, Binance will be used here as an example. 

Government-issued ID

You may share any one of the following:

  • Passport
  • Driver’s license
  • Some other official ID proof from your country.

Did you know? The most recent Anti-Money Laundering directive, AMLD 6, was published in the Official Journal of the EU on June 19, 2024.

Binance asking for a government-issued id during KYC process

Proof of Address

Exchanges may require documents proving your current address. Common examples include:

  • Utility bills
  • Bank statements

Biometric verification

Many platforms insist on a selfie to prove it is really you. You might need to:

  • Take a selfie with your ID in hand
  • Take a live photo of yourself for facial recognition.

Some exchanges may request further details, for example:

  • Proof of income: A short summary of where you get your income from.

Did you know? The origin of AML regulations can be traced back to the 2001 Patriot Act, which introduced measures to combat terrorism.

What is the process of KYC in crypto exchanges?

Here is the typical process followed by crypto exchanges for KYC:

  • Sign up: Set up an account on the cryptocurrency exchange by entering your email address and choosing a password.
  • Submit personal information: The exchange requires information such as your name, address, date of birth and phone number.
  • Share identity documents: You share a soft copy of a government-issued document, such as a passport or driver’s license, and proof of address (such as a utility bill) through a live capture. Some exchanges may require you to upload these documents.

Binance asking for identification documents

  • Face verification: Depending on the country, some exchanges require a selfie or live photo.
  • Verification: Usually, in a matter of minutes, the exchange examines and confirms the information.

Once approved, the user has access to all of the exchange’s features.

What are the common concerns and misconceptions about KYC?

When it comes to KYC requirements on crypto exchanges, having concerns or misconceptions is common. Let’s address some major legitimate worries on this front:

Privacy fears

You may be understandably concerned about sharing your personal information with crypto platforms. But then who wouldn’t? Often, the concern stems from the fear that their data might be misused or exposed. But reputable crypto exchanges take data privacy seriously. They go as far as using advanced encryption methods to protect your information from unauthorized access.

Crypto exchanges in various countries or regions have to comply with local laws regarding privacy, such as the General Data Protection Regulation (GDPR) in the EU, which adds an extra layer of protection, making sure your data is handled responsibly.

  1. Complex and time-consuming process: If you think KYC is a long, confusing process, you’re mistaken. Most exchanges have streamlined their verification systems to make the entire process quick and easy to complete.
  2. Loss of anonymous trading: There is a general misconception that KYC eliminates all anonymity in crypto. But KYC just adds accountability onboard without killing anonymity. Sure, the exchange can trace transactions to the individual and so can law enforcement agencies, but for users in general, the transactions remain anonymous.
  3. Crypto exchanges will sell data: If you’ve heard someone say something along this line, to believe that wouldn’t be right. Reputable platforms adhere to strict privacy regulations, which restrict them from selling personal information without explicit consent. What you need to do is conduct adequate research regarding the dos and don’ts of the crypto exchanges before you decide on one you need to work with. 

Are there any crypto exchanges without KYC?

As this article gets wrapped up, it’s time to quickly address this question that might have crossed your mind in the course of this read. 

Are there crypto exchanges without KYC? Yes, there are still some crypto exchanges that don’t require KYC verification. However, they are getting fewer by the day due to regulations becoming stricter and an increase in crypto crimes.

Decentralized exchanges (DEXs) like Uniswap or PancakeSwap don’t require a KYC. These exchanges allow you to trade directly from your wallet without providing any personal details. These platforms operate without a central authority, so there’s no one to ask for your ID or documents.

Some centralized exchanges also offer limited services without KYC. They place transaction limits to avoid breaking any rules. However, while non-KYC transactions may come across as a great option for someone who will be dealing with transactions involving lesser amounts, KYC becomes imminent if you plan to be more active. 

As regulatory pressure increases, even some exchanges that once had no-KYC policies are changing their customer onboarding processes. For instance, in May 2024, Bybit introduced mandatory KYC procedures. 

While you can still find crypto exchanges that don’t require KYC, it’s crucial to weigh the privacy benefits against the potential risks that include punitive action by regulators and theft.